Heavitree Brewery PLC 15 February 2006 The Heavitree Brewery PLC Trood Lane Matford Exeter EX2 8YP Telephone: 01392 217733 Contact: Mr G.J.Crocker - Finance Director and Company Secretary Mr R.J.Glanville - Director Date: 15 February 2006 Preliminary Notice of Results Following a Board Meeting held today, 15 February 2006, the Directors announce the preliminary results for the year ended 31 October 2005. Chairman's Statement Results I would like to draw your attention to my opening remarks in last year's statement. The first paragraph said this: "The figures are distorted as costs of some £200,000 authorised but not actually spent in 2004 have been reallocated to 2005. This money is part of the £400,000 which I mentioned in June 2004 as being a minimum necessary spend to comply with the new regulations regarding Disability Discrimination, Control of Asbestos and Licensing. The profit for this year has benefited from this, but next year's will suffer the consequences." This duly happened and the costs for this year under the above headings amount to a total of £284,000. The new Licensing Laws' procedural requirements have been completed in respect of all of our pubs. Apart from the financial costs mentioned above, there has been a heavy demand on the time of our senior management people, about seven months' worth of this time in fact. I find it hard, to say the least, to see any commensurate improvement or benefit to anyone resulting from the new system. The profit before tax for this year is £1,299,000 (2004 restated - £1,586,000) which, in the circumstances, is satisfactory. Other points to note are: Core Company - operating profit of £1,506,000 (2004 restated - £1,994,000). The Managed Houses (Heavitree Inns) - operating loss of £11,000 (2004 - loss £45,000). The American Subsidiary (Heavitree Inc) - operating loss of £6,000 (2004 - loss £5,000). Sales of Fixed Assets - a profit of £252,000 (2004 - £16,000). Sales of Beer - up by 0.92% by volume. Dividends The Directors recommend an unchanged final dividend of 6p per Ordinary and 'A' Limited Voting Ordinary Share. This together with the interim dividend of 3.5p makes a total of 9.5p per share (2004 - 9.5p) for the year. If approved, the final dividend will be paid on 7 April 2006 to shareholders on the Register at 3 March 2006. Borrowing At the AGM we will be seeking Shareholders' approval for a change in our borrowing capacity as defined in the Memorandum & Articles of Association. The proposal is fully described in the Directors' Report. Although there is no intention of changing our present policy of borrowing restraint, the proposal reflects the change in the real value of our pubs and the rising cost of the vital programme of their regular refurbishment. Heavitree Inns The previous history of losses has been virtually eradicated. In future this subsidiary will operate under rental arrangements more in keeping with the accepted norm for our industry and accordingly will not be liable for a rent charge. Heavitree Inc There have been no significant events during the year. Property The Lamb Inn, Sandford, Crediton was sold giving rise to a gross profit of £293,000. We also purchased a cottage and a former village hall, both for the expansion of our pub operations, at a cost of £439,000. Capital improvements totalling £705,000 have been carried out at several of our pubs including The Mount Pleasant Inn, Dawlish Warren; The Carpenters Arms, Ilsington; The New Inn, Sampford Courtenay; The Crown & Sceptre, Newton St. Cyres; and The Golden Lion Inn, Tipton St. John, with major alterations completed at The Maltsters Arms, Clyst St. Mary and The Full Quart, Hewish, Weston-super-Mare. Personnel The whole team has worked tirelessly and every member of it has earned our gratitude. Prospects Regulations and legislation will continue to be expensive without being productive and there is now the possibility of a ban on smoking in every pub in the Country. Sales in some of them could well suffer as a result. But these will be overshadowed by the astonishing increase in costs which we will face in honouring our pension obligations. We started our pension scheme in 1963. Proper advice was taken and the cost of a generous pension plan was well within our means. Longer life spans, exacerbated by new rules about the balance of funds invested in equities as opposed to gilts and Gordon Brown's tax raid on dividends received by pension funds, have led to ever-increasing contributions required by the calculations of the Actuaries. All this gives rise to a black hole which, in the course of the last few years, has been variously estimated at £1.4 million at 1 January 2002, £4.2 million at 1 January 2005 (or £7.4 million in the event of cessation). And we still do not have a definite figure. We have followed professional advice on funding levels throughout the life of the scheme and have never taken a contribution holiday. This clearly is a very difficult situation to have to face and we continue to take advice and consider all options. No doubt we will get through it but it is bound to have an effect on our growth strategy. As a starting point we have decided to adopt, one year early, FRS 17 the Accounting Standard that deals with Retirement Benefits, thereby starting to reflect part of the problem on our balance sheet, which at 31 October 2005 is carrying a net pension deficit of £1,676,000. On a brighter note, gross profits for 2006 will be boosted by some £800,000 as a result of the sale of our shareholding in George Gale and Company Limited, which was the subject of a successful cash offer from Fuller Smith & Turner PLC in December 2005. W P Tucker Chairman 15 February 2006 Group profit and loss account for the year ended 31 October 2005 As restated 2005 2004 Note £000 £000 Turnover 12,891 12,487 Operating profit 1,489 1,944 Profit on sale of fixed assets 252 16 Income from other fixed asset investments 13 13 Profit on ordinary activities before interest and taxation 1,754 1,973 Other interest receivable 9 9 Interest payable (379) (298) Other finance charges - FRS 17 (85) (98) Profit on ordinary activities before taxation 1,299 1,586 Taxation on profit on ordinary activities (308) (495) Profit attributable to shareholders 991 1,091 Dividends - equity and non-equity 3 (513) (510) Profit retained for the financial year 478 581 Basic and diluted earnings per share 4 18.4p 20.1p All revenues and costs relate to continuing operations. Group balance sheet at 31 October 2005 As restated 2005 2004 £000 £000 Fixed assets Tangible assets 15,836 14,839 Investments 195 195 16,031 15,034 Current assets Stocks 149 143 Debtors 1,299 1,608 Cash at bank and in hand 520 700 1,968 2,451 Creditors: amounts falling due within one year (9,188) (9,116) Net current liabilities (7,220) (6,665) Total assets less current liabilities 8,811 8,369 Creditors: amounts falling due after more than one year (272) (270) Provisions for liabilities and charges Deferred taxation (282) (264) Net assets excluding pension liability 8,257 7,835 Pension liability (1,676) (1,519) 6,581 6,316 Capital and reserves Called up share capital 291 291 Capital redemption reserve 658 658 Other reserves 72 72 Own shares reserve (730) (595) Profit and loss account 6,290 5,890 6,581 6,316 Attributable to non-equity interests 11 11 Attributable to equity interests 6,570 6,305 Total shareholders' funds 6,581 6,316 Group statement of cash flows for the year ended 31 October 2005 2005 2004 Note £000 £000 Net cash inflow from operating activities 5 2,616 1,785 Returns on investments and servicing of finance Interest Paid (431) (246) Interest received 9 9 Dividends received 13 13 Preference dividend paid (1) (1) Net cash outflow from returns on investments and servicing of finance (410) (225) Taxation Corporation tax paid (632) (330) Return of overpayment of corporation tax - 26 (632) (304) Capital expenditure and financial investment Payments to acquire tangible fixed assets (1,786) (1,609) Receipts from sales of tangible fixed assets 470 154 Receipts from repayment of fixed assets investments - 9 (1,316) (1,446) Equity dividends paid (510) (502) Financing Consideration received by EBT on sale of shares 39 203 Consideration received by EBT on exercise of share options - 147 Consideration paid by EBT on purchase of shares (163) (595) Repayment of directors' loans (21) (23) Loans from directors 17 22 (128) (246) Decrease in cash (380) (938) Notes to the preliminary announcement 1 These figures do not constitute full accounts within the meaning of S.240 of the Companies Act 1985. They have been extracted from the statutory accounts for the year ended 31 October 2005, on which the auditors have issued an unqualified audit report. The statutory accounts have not yet been delivered to the Registrar of Companies. 2 The 2004 results have been restated following the implementation of FRS 17 'Retirement Benefits'. 3 Dividends 2005 2004 £000 £000 Non-equity interests: £1 11.5% Preference 1 1 Equity interests: Interim 3.5p per Ordinary and 'A' Limited Voting Ordinary share (2004 - 3.5p) - paid 195 199 Proposed final 6p per Ordinary and 'A' Limited Voting Ordinary share (2004 - 6p) 335 335 Less dividends on shares held within employee share schemes (18) (25) 512 509 513 510 4 Basic and diluted earnings per share The calculation of basic earnings per ordinary share is based on earnings of £990,000 (2004 restated: £1,090,000), being profit after taxation for the year of £991,000 (2004 restated - £1,091,000) less preference dividends of £1,000 (2004 - £1,000), and on 5,369,929 (2004 - 5,414,935) shares being the weighted average number of Ordinary and 'A' Limited Voting Ordinary Shares in issue during the year after excluding the shares owned by The Heavitree Brewery PLC Employee Benefits Trust and those shares under option pursuant to the Employee Share Option Scheme. The diluted earnings per share is equal to the basic earnings per share because the share options within the Employee Share Option Scheme are considered to be non-dilutive potential ordinary shares. The Ordinary Shares and the 'A' Limited Voting Ordinary Shares have equal dividend rights and therefore no separate calculation of earnings per share for the different classes has been given. 5 Group statement of cash flows Reconciliation of operating profit to net cash inflow from operating activities: 2005 2004 £000 £000 Operating profit 1,489 1,944 Depreciation 571 503 Increase in stocks (6) (1) Decrease/(increase) in operating debtors 309 (516) Increase in operating creditors 241 12 Exchange gains on cash - 3 Increase in other provisions 157 15 Net pension change (145) (175) Net cash inflow from continuing operating activities 2,616 1,785 6 Copies of the 2005 Annual Report & Accounts will be posted to shareholders on 7 March 2006. Further copies may be obtained by contacting the Company Secretary at The Heavitree Brewery PLC, Trood Lane, Matford, Exeter EX2 8YP. The Annual General Meeting will be held at the Registered Office on 6 April 2006. Ends. This information is provided by RNS The company news service from the London Stock Exchange